In an article in Weekly Worker, Michael Roberts seems to have got overexcited in relation to data on The Law of the Tendency for the Rate of Profit to Fall, collated by him and his co-thinkers. I've, dealt, in the past, with the problems of the methodology he uses in determining the rate of profit, and consequently changes in it, as well as the conclusions he draws from it. However, dealing with that erroneous methodology, and his latest claims on the rate of profit is an issue for another day. I will start, therefore, by assuming that his latest claims about it are correct. Having done so, let me make a number of opening remarks.
Roberts says that Marx describes The Law of the Tendency for the Rate of Profit to Fall as of greatest importance. Well, as Marx says, it was certainly seen as such by bourgeois political economists such as Smith, Ricardo and Malthus, who believed that it led to crises for capitalism, ultimately threatening its existence. But, Marx shows that their explanation of it, and their catastrophic conclusions, were both wrong. For Smith, it was the fact that capital grows at a faster pace than labour supply causing wages to rise, and profits to fall, whereas for Ricardo and Malthus labour supply rises, but the cost of producing it rises, due to rising agricultural prices, causing wages to rise and profits to fall. Their explanation of it, as Marx sets out in Theories of Surplus Value, Part II, came down to changes in the value composition of capital, resulting from diminishing returns.
Such changes did occur, as Marx describes in Capital III, Chapter 6 and 15, and in Theories of Surplus Value, Chapter 9 et sub, and these did lead to crises of overproduction. But, likewise, capital responds to such crises, so that, at other times, rising productivity brings increasing not diminishing returns, the value composition of capital moves in the opposite direction, and profits rise, as well as the rate of profit rising. It is this cyclicity that is behind the cyclical nature of crises, not The Law of the Tendency for the Rate of Profit to Fall, which, as Marx describes, is a long-term secular movement, brought about by quite different causes. Indeed, its precisely because of that fact that those of us who disagree with Roberts' catastrophist views on The Law of the Tendency for the Rate of Profit to Fall, and crises, which resemble those of Malthus and Ricardo, rather than Marx, can be perfectly sanguine about any data he and his associates might produce relating to this long-term secular decline, because it changes nothing in relation to the fundamental issue of dispute, which is the relevance or otherwise of any such long-term fall to capital accumulation, and crises.
As I have set out in the past, in his desperation to claim any fall in the rate of profit as being proof of The Law of the Tendency for the Rate of Profit to Fall, Roberts frequently bases his arguments on falls in the rate of profit that have nothing to do with it, but are caused by the same kinds of changes in the value composition of capital that formed the basis of the arguments of Smith, Malthus and Ricardo. Yet, Marx, in Theories of Surplus Value, is at great pains to demonstrate the different, indeed contradictory, nature of these two causes of a falling rate of profit - changes in the value composition, as against his explanation based upon a rising technical, and consequently organic composition of capital. The former is the basis of crises of overproduction of capital, which, in turn, creates the need for a new technological revolution, which creates the rise in social productivity, which is the basis of the latter.
A clear statement of that is in Capital III, Chapter 15, where he defines an overproduction of capital as follows,
“As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”
In other words, this is a clear statement of an overproduction of capital being caused by a change in its value composition, as the demand for labour reaches a point at which its not possible to extend the social working-day, so that no additional absolute surplus value can be produced, and, indeed, where wages are pushed up, reducing relative surplus value, and so squeezing profits. In other words, it is the old Smithian, Malthusian/Ricardian view of a falling rate of profit, caused by an actual fall, in profits, or at least only a small rise compared to the amount of additional capital advanced. But, that is the opposite of The Law of the Tendency for the Rate of Profit to Fall described by Marx, in which the mass of profit rises, and, indeed rises more rapidly, as a result of additional capital being advanced, and does so because wages fall, as a relative surplus population is created, and the value of labour-power falls.
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